Chile, New Zealand and Singapore Closer Economic Partnership

An initial analysis of the trade and economic benefits of negotiating a “Pacific Three” Closer Economic Partnership Agreement involving Chile (October 2002)

Overview of the Chilean Economy

Chile has had one of the strongest economies in Latin America in the past decade. Economic success has been based on the development of open markets, a diversified strong export sector and an open foreign investment regime. The country is rich in natural resources: copper, timber, fish, iron ore, nitrates and precious metals. The services sector is significant at around 55% of GDP. Manufacturing, too, plays an important role: 17.7% of GDP is derived from manufacturing sector operations. Chile is competitive in horticulture, industrial crops and timber products, which contribute 8.8% of GDP, slightly less than mining at 10.4%. Chile, like New Zealand, is one of the world’s major traders of radiata pine and temperate fruit.

Foreign direct investment (FDI) and a high domestic savings ratio (20% of GDP) play important roles in the Chilean economy.

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The Chilean economy has grown in response to the Government’s sound economic policies, coupled with strong export growth, averaging 6.9% per annum during 1994-98. Economic growth as a whole slowed to 3.4% in 1998 as the Asian crisis and El Niño weather pattern impacted on Chile’s exports and on the fishing, water and electricity sectors. The flow-on effects of these events coupled with a contraction in domestic demand and a serious drought caused GDP to contract by 1.1% in 1999.

However, the economy grew by 5% in 2000, led by exports and by 2.9% in 2001. Chile’s solid fundamentals means that it has been somewhat insulated from the economic difficulties that have affected much of the region in 2002. A recent IMF report compliments Chile on its good performance in the face of an adverse external environment, crediting the country’s stability, good governance and credible institutions, which help to reinforce its sound economic agenda. The IMF says Chile is well placed to continue to adjust to any new adverse shocks in an orderly fashion, and predicts GDP growth of 4.2% in 2003.

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Table 1 sets out relevant macro-economic indicators. As can be seen from the breakdown of agriculture, industry and services as proportions of GDP, the two economies are not too dissimilar in make-up.

Table 1:  Selected Macroeconomic Indicators, New Zealand and Chile (2001 data unless specified)
Indicator	New Zealand	Chile
Population (mil)	3.8	15.2
GDP (US$ bill)	49.5	70.2
GDP per capita (US$) (2000)	12,870	4,620
GDP per capita (US$) (2000) - Purchasing Power Parity	20,295	14,172
Visible exports (US$ bill)	13	17.4
Visible imports (US$ bill)	12.4	15.9
Agriculture as % GDP	8.3	7.1
Industry as % GDP	23.4	37.1
Services as % GDP	68.3	54.1
Source:  Economist Intelligence Unit

A Similar Economic Outlook

Both Chile and New Zealand have undertaken comprehensive economic reforms. The result is that both countries now have very open economies by international standards and, more importantly, both are striving to capitalise on that openness to promote economic growth.

Both countries have been at the forefront of trade liberalisation. New Zealand’s Closer Economic Relations Trade Agreement which entered into force with Australia in 1983 has led to a free flow of trade in goods and services across the Tasman in almost all areas, while the Closer Economic Partnership Agreement concluded with Singapore in late 2000 sets a benchmark for others in the APEC region to follow, with comprehensive coverage of all sectors. New Zealand is currently in negotiations with Hong Kong and is exploring possibilities with several other countries and regional groups, including the US and ASEAN.

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Somewhat more intensivley, Chile’s trade relations have, since 1990, become increasingly focussed on the negotiation of bilateral trade agreements. To date, Chile has negotiated preferential agreements with Bolivia, Canada, Colombia, Ecuador, Mexico, Peru, Venezuela, Mercosur, the Central American region, and has just concluded an FTA with the EU. Chile is also currently negotiating FTAs with Korea, EFTA European Free Trade Association (Switzerland, Norway, Iceland and Liechtenstein), and the US, and on completing the US FTA, will, in effect, become the “fourth” member of NAFTA. Chile has been a strong proponent of pressing ahead on negotiations for a Free Trade Area of the Americas (FTAA) agreement, and as a member of APEC is seeking to boost commercial ties to Asian markets.

While both Chile and New Zealand are significant commodity exporters, there is still much complementarity between the two economies, with only a few areas of sensitivity in merchandise trade. Thus, it should be possible to negotiate a comprehensive CEP that not only provides real benefits to both New Zealanders and Chileans, but which would also, from a strategic perspective, go some way to raising the profile of each country in the other’s market. As neighbours across the Pacific, a CEP would also provide a useful bridgehead for each country into the neighbouring regional countries; for New Zealand into the countries of Latin America; for Chile into the Asia Pacific region.

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New Zealand and Chile: Global traders

New Zealand - Global trade

New Zealand is a small island economy that relies heavily on trade with the outside world to maintain and improve its standard of living. New Zealand’s competitive advantage lies in the natural resource products of agriculture, horticulture, forestry and fisheries. Approximately 48% of New Zealand’s exports are agricultural products (this does not include seafood and fisheries which are not defined as agricultural products by the World Trade Organisation). This compares with an OECD average of 7.2%. Most of New Zealand’s agricultural (and wood) exports face barriers in overseas markets ranging from prohibitive tariff levels to restrictive tariff quotas, and competition from subsidised products in many agricultural markets. The problem of “tariff escalation” whereby tariffs increase as value is added to the primary resource (eg when lower tariffs are applied to unprocessed logs than to planks or furniture) also has a major negative impact on New Zealand’s ability to export.

While overall, New Zealand’s trade is only a small percentage of total world merchandise trade (0.23 percent of world exports and 0.24 percent of world imports), there are several important areas where New Zealand is a major player. These include dairy produce and sheepmeat as well as several smaller niche markets of specialist products. Recognising the importance of trade to New Zealand (merchandise exports are equivalent to 25 percent of our GDP), trade policy has focussed on obtaining better access to overseas markets for our exporters. This is undertaken primarily through multilateral negotiations in the WTO, as well as bilateral and regional initiatives such as New Zealand’s CER agreement with Australia and the CEP with Singapore.

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New Zealand’s Manufacturing Sector

New Zealand’s manufacturing sector was one of the most protected among OECD economies before the mid-1980s. With the phased removal of protection, New Zealand manufacturing has undergone a fundamental structural change. Employment declined from the late 1980s until 1992, but then increased from 1992 to 1996, and has remained relatively stable since. Real output produced in the manufacturing sector also declined from the mid-1980s until 1992, but has been increasing steadily since. As a result, labour productivity in the sector increased by an amount significantly above the average of 9.9 per cent increase for all industrial sectors during the same period. The export performance of the manufacturing sector has also improved, with the share of non-food manufactured products in total merchandise exports increasing from 14.3 percent in 1988 to 28.9 percent in 2000.

Table 2 shows the composition of New Zealand’s merchandise exports, expressed in millions of US dollars. Approximately half is comprised of agricultural exports as defined by the WTO. Forestry products are the main grouping of non-agricultural exports, emphasising the resource-based nature of New Zealand’s economy.

Table 2: New Zealand - Exports by Commodity Groups (US$m)
Years ending December			1999	2000	2001
Agricultural Products			6,243	6,544	7,262
	Meat, meat products		1,685	1,784	1,918
		Beef fresh and chilled	75	71	79
		Beef frozen	557	624	655
		Sheepmeat	817	845	903
	Dairy products		2,451	2,658	3,284
		Milk and cream concentrated	879	1,004	1,485
		Butter	515	507	435
		Cheese and Curd	510	496	606
		Casein and Caseinates	372	460	553
	Wool		444	455	393
	Hides, Skins, Leather		263	302	350
	Fruit and Vegetables		839	737	680
	Other Agriculture		560	609	637
Non-Agricultural Products			6,233	6,726	6,404
	Fish		690	638	608
	Forestry and Forestry Products		1,431	1,534	1,407
	Textiles, Clothing and Footwear		161	145	156
	Machinery		944	1,022	1,009
	Minerals, fuels and chemicals		270	345	283
	Metals and metal articles		878	918	842
	Other manufactures		1,859	2,125	2,099
Totals Exports			12,476	13,270	13,666

Table 3 shows the destination of New Zealand’s exports, and demonstrates that New Zealand is reliant upon a wide diversity of markets. Over 20 percent of exports are destined for the Americas (mostly North America) and North Asia. Australia (17.7%) and the EU (15%) are key markets. Seventy three percent of total exports are destined for APEC markets, underscoring the importance of the Asia Pacific region for New Zealand.

Table 3: New Zealand Merchandise Exports by region (%)
December years		1985	1990	1995	1999	2000	2001
APEC		61.1	66.5	72.2	71.3	73.5	72.9
Africa		0.6	0.4	0.5	0.5	0.5	0.6
America		19.4	18.2	14.5	18.4	19.5	21.8
	North America	17.2	16.2	11.8	16	17.1	18.6
	Other America	2.2	2	2.7	2.4	2.4	3.2
Asia		27.6	32.6	40.1	34.7	37.2	37.2
	North Asia	22.1	25.3	30.8	25.6	27.1	26.5
	South Asia	1	1.5	1.6	1.7	1.6	1.4
	South East Asia	4.5	5.9	7.7	7.4	8.5	9.3
Australia		16.1	18.3	19.9	21.2	19.8	17.7
CEEC and NIS		2.3	2.2	1	0.6	0.5	0.4
Europe		21.6	19.4	16.8	17.3	15	15.2
Other		12.3	8.8	7.4	7.4	7	6.8
Total		100	100	100	100	100	100

Source: Ministry of Foreign Affairs and Trade - Economic Division

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Imports rose by 3.1% in the December 2001 year compared to the previous year, reaching NZ $31.7 billion. The largest source of imports remains Australia, at NZ $6.9 billion and a 22% share of the New Zealand market. This is followed by the United States with NZ $5 billion and Japan at NZ $3.5 billion. China, the United Kingdom and Germany, from which New Zealand imports over $1 billion each, completed the top six. Imports from the EU were NZ $5.9 billion or 18.6% of total imports, and imports from the EU grew 10.4%. Decreases were recorded from Canada and the US.

Asia as a whole remains the most important source of imports, accounting for 32.5% of total imports. This includes 23% from North Asia and 9.6% from South and South East Asia. Australia, with a 22% share is next, followed by Europe (20%) (mostly from the EU), and the Americas (19%). The Middle East and Africa declined to 5.9%, from 6.5% in 2000. The Pacific Islands, the Central and East European Countries (CEEC), Newly Independent States (NIS) and ‘other’ provided the remainder of imports in the year to December 2001.

Machinery remained New Zealand’s largest import item, with a 13.2% share of imports. Vehicles was second (12.7%), while mineral fuels took third place with a 9.9% share. Electrical machinery was fourth at 9.4%.

Chile - Global Trade

Like New Zealand, Chile's economy is dependent on international trade. In 2001, exports decreased to US$17.6 billion from US$18.1 billion in 2000, and imports decreased to US$15.9 billion from US$16.7 billion the previous year. Exports accounted for about 25% of GDP. Chile has traditionally been dependent upon copper exports; the state-owned firm CODELCO is the world's largest copper-producing company. Foreign private investment has developed many new mines, and the private sector now produces more copper than CODELCO. Copper output continued to increase in 2001. Non traditional exports have grown faster than those of copper and other minerals. In 1975, non-mineral exports made up just over 30% of total exports, whereas now they account for about 60%. The most important non-mineral exports are forestry and wood products, fresh fruit and processed food, fishmeal and seafood, and wine. Chile is not a significant manufacturer or exporter of textiles, clothing and footwear, its exports in 2001 of US$68 million being significantly lower than New Zealand TCF exports.

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Table 4 sets out Chile’s major merchandise exports.

Table 4: Chile - Merchandise Exports by Commodity Groupr (US$m)
Years ending December		1998	1999	2000	2001
Agricultural Products		3,651	3,627	3,419	3,592
	Meat	77	75	104	153
	Dairy	27	31	26	43
	Wool	30	22	23	22
	Hides, Skins and Leather	14	20	28	28
	Fruit and Vegetables	1,810	1,906	1,534	1,510
	Other Agriculture	1,693	1,572	1,705	1,836
Non-Agricultural Products		11,103	12,228	14,734	14,019
	Fish	1,308	1,452	1,533	1,519
	Forestry	1,538	1,867	2,242	2,126
	Textiles, Clothing and Footwear	87	69	68	68
	Machinery	244	267	234	264
	Mineral fuels	56	67	201	259
	Other Manufactures	7,871	8,565	10,456	9,873
Total Exports		14,754	15,915	18,153	17,612

Source – Chilean Trade Data

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Table 5 shows Chile’s key export destinations.

Table 5: Chile - Merchandise Exports, Top 15 Destinations (US$m)
Years ending December		1998	1999	2000	2001
Rank	Country
1	United Staes	2,610	3,087	2,991	3,214
2	Japan	1,956	2,276	2,539	2,167
3	England	1,161	1,085	1,064	1,234
4	China	460	359	901	1,027
5	Brazil	779	688	969	862
6	Mexico	488	623	814	832
7	Italy	668	637	817	815
8	France	444	495	631	618
9	Korea	385	684	809	578
10	Argentina	735	727	636	556
11	Holland	433	511	446	544
12	Germany	538	566	459	536
13	Peru	353	354	437	480
14	Taiwan	525	510	592	361
15	Spain	275	328	374	337
61	New Zealand	16	10	10	9
Total Chilean Exports		14,754	15,915	18,153	17,612

Source – Chilean Trade Data

Chile's export markets are fairly balanced among Europe, Asia, Latin America, and North America. The U.S., the largest-single market, takes in 18.9% of Chile's exports. Latin America, and in particular the smaller countries, have been Chile’s fastest-growing export market in recent years. The government actively seeks to promote Chile's exports globally, its policy of negotiating free trade agreements with key economic and strategic partners a tangible expression of this goal.

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The Bilateral Relationship

Building Closer Linkages

New Zealand places a high value on its relationship with Chile. The Embassy in Santiago was the first established by New Zealand in Latin America, in 1972. Since that time there have been many links established including in the trade, investment, and academic arenas, as well as regular political dialogue and cooperation in international fora. Chile’s membership of APEC has added an additional point of contact. Chile, has strong links into the Pacific – Easter Island is part of Chile.

In 1997, in recognition of the unrealised potential of New Zealand’s relationship with Chile, (and with the rest of Latin America), the New Zealand Government set up a ‘Focus Latin America’ programme. In August 2000, Prime Minister Helen Clark launched a longer term Latin America Strategy, aimed at deepening and broadening New Zealand’s relationship with Chile and other countries in Latin America. This initiative was the subject of discussion in Santiago in March 2000 between Helen Clark and President Lagos.

Under the strategy existing links have been strengthened, and new ones established. There has been more contact at the official and political level on bilateral and multilateral issues. In the last two years four New Zealand Ministers have visited Santiago, including the Prime Minister, and Mr Sutton with a trade mission. President Lagos also visited Wellington in November 2000. And there have been many high level official visits. The level of cooperation on international issues, especially in the UN, has increased.

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People to people contacts

A key element of the strategy has been the emphasis on building people to people contacts. This has included cultural visits, science cooperation, (a Science and Technology Agreement is expected to be signed soon), academic cooperation, (with Unitec, Massey, Auckland, Lincoln and Otago universities having established links with Chile counterparts), indigenous cooperation, and sporting links. A working holiday scheme was established in 2002, and is proving popular. The recently introduced direct flights between Auckland and Santiago will also help to facilitate tourism, a sector of considerable potential.

Indigenous Business Links

Chile has expressed interest in developing business links between its indigenous people, (who include the Mapuche from Mainland Chile and the Rapa Nui of Easter Island) and Maori. This is being encouraged under the Latin America Strategy. A CEP would facilitate those links (particularly in areas such as tourism, agriculture and fisheries), and open opportunities for the transfer of ideas and expertise through business co-operation and joint ventures.

Science and Technology

The Science and Technology Agreement will open up significant potential for cooperation, and this would be enhanced in a P3 environment. The importance of primary industry to both countries, (forestry, pastoral agriculture, horticulture, and fisheries), and a mutual interest in biotechnology to improve production, presents very real opportunities for collaboration and information sharing. Chile has undertaken some excellent work on applying the results of research to business incubators through the Fundacion Chile, for example, which would be a valuable partner for New Zealand institutions. A link with the Forest Research Institute has already been established. These links could flow through to the AgriTech industry.

Enhancing science and technology links through the P3 Agreement would be wholly consistent with the Government’s Growth and Innovation Framework. The possibility of establishing formal scientific exchanges within any P3 agreement, to encourage exchanges of information and scientists, and collaborative research initiatives could be investigated.

Education is another area of particular interest, and is covered in greater detail in Chapter 5.

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Current Bilateral Trade

In the year to December 2001, Chile was New Zealand’s 46th most important export destination, receiving $49.8 million or 0.16 percent of total exports. Similarly, it was the 50th most important source of imports, supplying $27 million or 0.09 percent of the total for the same period. Table 6 shows the export trade over the last six years at both aggregate and HS Chapter 2 levels. This data is presented in New Zealand dollars, as distinct from the US dollars used earlier. There has been a degree of volatility in both the total exports to Chile and the individual sectors comprising the top 4 export items in 2001. While “Confidential”[1] items cannot be directly identified, it is likely that these mostly comprise coal exports. Exports of dairy products have declined since the mid 1990s, apart from 2000. Although the overall level of bilateral trade is fairly low, unlike many other Latin American markets to whom New Zealand exports, trade with Chile takes place over a broad range of goods. This diversity presents a range of opportunities, on which New Zealand exporters can use a CEP to build a profile in the Chilean market.

Table 6: New Zealand exports to Chile by HS2 Chapters NZ$ million
Description	1996	1997	1998	1999	2000	2001
Total	85.66	72.24	55.45	43.62	76.65	49.83
Machinery	9.63	9.58	2.48	4.7	15.35	11.26
Confidential	0	0	0	1.89	9.54	11.1
Dairy	44.11	39.26	19.91	12.53	37.34	10.33
Casein	1.23	1.5	2.18	2.8	2.66	3.66
Electrical Machinery	1.29	3.52	2.89	2.14	1.37	2.57
Seeds etc	4.17	2.7	2.99	2.86	4.78	1.81
Sugar Products	0.76	0.49	0.52	0.65	0.78	1.33
Plastics	0.52	0.75	0.79	0.74	1.11	0.71

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Table 7 shows details of imports from Chile over the last six years by totals and main import items for 2001. Fruit, wine and copper articles have consistently been the dominant imports in 2001.

Table 7: New Zealand Imports from Chile NZ$ millions
Description	1996	1997	1998	1999	2000	2001
Total	32.91	33	27.64	23.41	27.77	27.08
Fruit	4.04	4.43	2.47	3.07	4.44	6.1
Wine	3.1	2.91	3.24	3.28	6.33	5.04
Copper and articles	3.89	5.8	3.46	1.91	3.03	2.43
Salts etc	0.28	0.58	1.08	1.3	1.31	2.04
Fish meal	0	0	0	0.21	2.48	1.54
Fish	1.01	0.41	0.14	0.85	0.67	1.49

Tariff Implications for a P3 Agreement including Chile

New Zealand Tariff Policy

New Zealand’s tariffs are frozen at existing levels until July 2005. The current policy is that tariffs will not be removed before then except on a reciprocal basis. For example, from 1 January 2001, New Zealand and Singapore eliminated all tariffs on goods traded bilaterally between them, pursuant to the provisions of the CEP Agreement which provided for reciprocal removal of tariffs.

A key outcome of any CEP would be to remove tariffs on goods of New Zealand or Chilean origin as defined by the CEP Agreement and traded between them, and to provide a reciprocal legal undertaking that goods traded bilaterally will eventually enjoy duty free status.

Currently, 95 percent of global imports enter New Zealand duty free, either because the specific types of goods are not made in New Zealand or because of preferential tariff agreements. New Zealand applies "normal" tariff rates to countries which are not party to preferential tariff arrangements. “Normal" tariff rates on protected sectors in New Zealand are typically in the region of 5-7 percent. However, certain sectors receive higher protection. For example, clothing and certain footwear items are protected by a 19 percent tariff (or more when “alternative specific” tariffs, expressed in dollars per garment, are applied to low cost clothing).

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Chilean Tariff Policy

Chile's single import tariff rate was reduced from 9% in 2000 to 8% in 2001 to 7% in 2002, and is scheduled to fall further to 6% in 2003. The effective trade-weighted average tariff rate fell from 6.7% in April 2000 to 5.5% in April 2001 owing to the schedule of tariff preferences granted through Chile's bilateral trade accords with Bolivia, Canada, Colombia, Ecuador, Mexico, Peru and Venezuela, and its association agreement with members of Mercosur. This rate will continue to fall by about 1 percentage point per year until 2003. Chile also has in place a price band mechanism to provide additional protection from certain imported agricultural products (wheat, wheat flour, edible oils and sugars). None of these products are major exports of New Zealand.

Duties on imports from Chile

Table 8 details the duties actually paid on Chilean exports to New Zealand in the 2001 and 2000 December years. The data is shown in Value for Duty (VfD) form, as distinct from the previous table which showed imports in Cost Insurance and Freight (CiF) form. The duties include excise duties levied on (mostly) beer, wine and spirits as well as tariffs. In 2000, Chilean imports to New Zealand of $23.5 million paid duties of $558,857 at an average rate of 2.4 percent. In the most recent 2001 year, imports of $25.3 million paid duties of $616,809 also at an average rate of 2.4 percent. In both years, a major portion of the total duties was paid on imports of wine.

Table 8: Duty Paid on Chilean Exports to New Zealand
Dec 2000 year	Duty	VFD	Rate	% of Imports
zero	0	15,289,466	0.00%	65%
zero - 1%	3,374	1,288,704.00	0.30%	5.50%
1% - 2%	7,489	551,461.00	1.40%	2.30%
5% - 6%	302,051	5,470,799.00	5.50%	23.30%
7%	12,601	180,019.00	7.00%	0.80%
10% - 20%	13,882	117,422.00	11.80%	0.50%
Greater than 20%	219,460	629,986.00	34.80%	2.70%
Total 2000	558,857	23,527,877	2.40%	100%
Dec 2001 year	Duty	VFD	Rate	% of Imports
zero	0	17,318,605	0.00%	68.40%
zero - 1%	2,136	1,135,647	0.20%	4.50%
1% - 2%	11,007	693,986	1.60%	2.70%
2% - 5%	3,086	91,096	3.40%	0.40%
5% - 7%	276,722	5,020,890	5.50%	19.80%
7%	10,613	151,619	7.00%	0.60%
10% - 20%	3,627	36,079	10.10%	0.10%
Greater than 20%	309,618	881,377	35.10%	3.50%
Total 2001	616,809	25,329,299	2.40%	100%

[1] Statistics New Zealand understands that the release of merchandise trade commodity information can, in some cases, place commercially sensitive information in the public domain. This can have detrimental effects upon companies that export and/or import goods. In light of such circumstances, Statistics New Zealand is able to provide a limited form of confidential status for commodity items upon application by a company or business.

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Table 9 provides details of the duties paid by Chile on its top dutiable exports to New Zealand for the December 2001 year. Most were paid on imports of wine and related alcohol products. These figures include excise duties. By duty, Chapter 20 items, consisting mostly of prepared jams and grape juice, paid the next largest amount of duty (but at a rate of 1.6%). As a Less Developed Country, Chile enjoys a tariff preference on many products, which is typically 80% of the normal tariff rate.

Table 9: Duties applied to imports from Chile (Dec 2001, NZ$ and %)
Chapter	Description	Imports	Duty	av duty
Total		25,329,299	616,809	2.4
22	wine	5,604,402	568,970	10.2
20	jams and grape juice	1,443,199	23,670	1.6
33	deodorants	148,324	10,382	7
51	wool fabrics etc	787,386	6,695	0.9
55	synthetic fabrics	35,818	3,582	10

Source: Statistics New Zealand.

Duties on New Zealand exports to Chile

Table 10 sets out the duties paid on New Zealand exports to Chile in the year to December 2001. Based on a flat tariff of 8%, New Zealand’s exports to Chile paid NZ$3.989 million in 2001. With Chile’s flat tariff rate falling to 6% by 2003, the amount of duty paid by New Zealand exporters can be expected to fall slightly over the next couple of years.

Table 10: Duties Applied to Exports to Chile (Dec 2001, NZ$)
Chapter	Descrition	Imports	Duty
Total		49,873,154	3,989,852
84	Machinery	11,260,501	900,840
97	Confidential	11,095,089	887,607
4	Dairy	10,524,297	841,944
35	Casein	3,660,659	292,853
85	Electrical Machinery	2,572,246	205,780
12	Seeds etc	1,808,383	144,671
17	Sugar Products	1,329,790	106,383
39	Plastics	710,097	56,808

Source: Statistics New Zealand

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Differences between Chilean and New Zealand import/export figures

As trade data reported by trading partners often differs, there can be problems in reconciling import and export statistics from different countries. This can be for a variety of reasons, including the timing of shipments, currency fluctuations, trans-shipments through a third port and differences in reporting methods[1]. It can also be for less obvious reasons: for example, an aircraft may be leased, and this may show up in one partner’s trade statistics but not the other’s (although it would be recorded in the Balance of Payments data).

Textiles, Clothing and Footwear

As previously noted, Chile, is not a significant manufacturer or exporter of textiles clothing and footwear. Any agreement would include robust and verifiable rules of origin to ensure that only New Zealand and Chilean products benefit from the tariff reduction arising under a preferential agreement. Therefore the reciprocal elimination of tariffs pursuant to a preferential P3 agreement would have a minimal (if any) impact on New Zealand’s protected textiles, clothing and footwear sectors, and in fact may offer a number of additional export opportunities at the upper, “fashion”, end of the clothing sector.

By providing an increased profile for New Zealand business and manufacturers, a P3 Agreement could open up new markets for New Zealand exporters, with Chile not only appealing as a potentially valuable market in its own right – but also as a stepping stone to the rest of Latin America.

[1] Exports from New Zealand are reported as FOB (Free on Board), which is the value of the exports as loaded onto the vessel or plane at the point of departure from New Zealand. Imports can be reported as VFD (Value for Duty), which is the equivalent of FOB but now at the point of arrival, or as CIF (Costs Insurance and Freight), which includes the costs of getting the goods from the point of departure to the arrival point. In general, CIF is about seven percent more than VFD on average in New Zealand. Different countries apply different rules for assessing duty - New Zealand uses VFD, while other countries may use CIF for assessment. It is also important to examine re-exports and re-imports.

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